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When You Should And Shouldn’t Remortgage Your Buy-To-Let Property

Remortgaging your buy-to-let property provides an excellent opportunity to save money and boost your profits as a landlord.

Your current deal is about to end.

Many of the best mortgages only last a short time – often two to five years – the typical length of time offered on a fixed rate, tracker or discount mortgage.

When it comes to an end, your lender will put you on its bog standard variable rate (SVR). It’s likely to be higher than your old interest rate and higher than the best buys available. If so, you want to be ready to remortgage to a cheaper rate. Start looking around 14 weeks before your rate ends.

You want a better rate.

If you are tied into an initial deal then you might have to pay an early repayment charge which can be huge, often 2-5% of your outstanding loan. Plus, there is usually a small exit fee (it might call it an ‘admin fee’ or a ‘deeds release fee’) when you repay any mortgage.

This doesn’t mean you shouldn’t consider it as the savings can be huge (especially if you have a large amount of mortgage debt). You just need to do your sums before taking the plunge.

Your home’s value has gone up…a lot.

If the value of the property has risen rapidly since you took out your mortgage, you may find you’re in a lower loan-to-value band, and therefore eligible for much lower rates. Again, you need to do your sums but it’s definitely worth a look.

You’re worried about interest rates going up.

Whoa there! Before you panic, you need to check what is meant by rates going up. If it’s the Bank of England base rate that is predicted to go up (currently the rate’s only 0.1% – a very low rate indeed), this may affect your mortgage payments directly, depending on the type of mortgage you have. If it’s the rates that new customers are being offered, then this doesn’t automatically mean yours will be affected.

You want to overpay & your lender won’t let you.

Perhaps you’ve had a pay rise or maybe you’ve inherited some money. You now want to pay extra but your current deal won’t let you or it will only let you make a small overpayment.

A remortgage will allow you to reduce the loan size and potentially get a cheaper rate as a result. But watch out for any early repayment charges or exit fees you face, and compare this to how much you’d save with the new, lower mortgage.

You want to switch from interest-only to repayment mortgage.

You shouldn’t actually need to remortgage to do this, your lender should be happy to make the change for you.

You can even change part of the loan to capital repayment and leave some on your interest-only deal, which is particularly useful for anyone with an underperforming endowment mortgage which is expected to result in a shortfall at the end of the term.

However, it’s a totally different story if you want to change from capital repayment to interest only – expect your lender to be difficult if you try to do this.

You want to borrow more.

Perhaps your current lender has said no to lending you extra money or the terms it’s offering aren’t very good. Remortgaging to a new lender might enable you to raise money cheaply on low rates. But remember to take all the fees into account to see if it really is cheaper than other forms of borrowing.

The new lender will ask you what the extra money is for. Surprisingly, it is likely to be more comfortable with you borrowing the money for a new car than for business purposes. Not so surprisingly, it won’t want to lend you money to start a new business….

The most commonly acceptable reasons to raise money are for home improvements and paying off other debts. Just be prepared for your lender to ask for evidence if you are borrowing a large amount, e.g. builder quotes, or proof that you have paid off the debts.

You want a more flexible mortgage.

Maybe you want to be able to miss a payment. Changing jobs, going back into education, going travelling – whatever the reason, there are mortgages which will let you take payment holidays.

Or maybe you’ve been tempted by different, whizzy mortgages which combine your savings or current accounts with your mortgage.

Whatever flexibility you want in a mortgage, chances are it’s out there. But remember products don’t offer these twiddly bits for free. Expect to pay for flexible features with a slightly higher interest rate. So don’t be tempted to go for bells and whistles unless you will actually use them.

If it sounds like remortgaging could be the right move for you, you want to start the search 14 weeks before you want to remortgage.

However, there are times when you shouldn’t remortgage your buy-to-let property:

Your mortgage debt is really small.

Once your loan falls below a certain amount – say around £50,000 – it may not be worth switching lender simply because you are less likely to make a saving if the fees are high. In fact, some lenders won’t even take on mortgages below £25,000.

Do have a look but you’ll probably want to look at rates with a small fee, or no fee at all. The smaller your mortgage, the worse the effect of any fees you need to pay. Quite often, you’ll be better remaining on the higher interest rate.

Your early repayment charge is large.

A large early repayment charge could mean that it’d be utter foolishness to move before the end of the incentive period. Do your sums to find out. If it would cost too much to free yourself from your current deal, then it’s all the more important that you do your homework, and be ready to move as soon as you can.

It’s always worth asking your current lender to let you switch to another of its deals (ie, do a product transfer) by paying a reduced early repayment charge. You’re unlikely to get to move to its top-of-the range deal but as long as it’s better than the one you’re currently on, and doesn’t lock you in for much longer, you have nothing to lose.

Your circumstances have changed.

It’s possible that your financial position has altered since you took out your current mortgage – for instance, one of you has stopped working or you have become self-employed, or perhaps you were furloughed for a number of months during coronavirus.

Stricter mortage rules introduced in 2014 mean lenders MUST see evidence of your income. New lenders may not be prepared to offer you a loan because you no longer fit their criteria, meaning you may have to stay where you are.

Your home’s value has dropped.

You may have had a 10% deposit when you bought your home and got a decent mortgage, borrowing the remaining 90% of your home’s value. But now, your house price has dropped and the amount you owe is a bigger proportion. Unfortunately, you’re a victim of evaporating equity, even if you have been making repayments, and that can hurt you. In some cases, you may be in negative equity, where your debt is higher than the value of the property.

The only thing you can do is sit tight, make overpayments whenever you can afford it as long as you won’t be charged fees as well, and wait for prices in your area to go up again.

You have very little equity.

If you only put down the minimum amount for a deposit on your buy-to-let then you may struggle to find a mortgage. Let alone to remortgage your property. Lenders are often risk averse and will factor in higher interest rates.

Having said that, buy-to-let mortgages have become more competitive in recent years, so it’s worth checking to see if it’s worth switching. Don’t forget to check if your current lender charges an early repayment charge to leave.

You’ve had credit problems since taking out your last mortgage.

Since the credit crunch, lenders have become much more picky about who they lend to. The regulator, the Financial Conduct Authority, now also requires them to carefully check the mortgage is affordable, not just at current rates, but at a higher rate too, to ensure you could cope if interest rates were to rise.

As a result, lenders will want a lot of detail about your outgoings, and are looking for spotless repayment histories or at least a good, clean record of handling debts well.

It might only take one recently missed payment to your credit card, loan, mortgage, utility company…even your mobile phone to scupper your chances.

You’re already on a great rate.

You may be already on such a fantastic deal that you’d be mad to move. But don’t get too comfortable – chances are it won’t always be top of the tree so eventually you’ll need to consider hopping onboard the remortgaging merry-go-round.

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